Shares of Kinder Morgan Inc. KMI have been in focus since News Corp.’s NWSA financial mouthpiece Barron’s came out with an analytical article on the prospects of the company on Saturday. Subsequent to that, the Houston-based oil and gas pipeline company has lost approximately 3% in the market.
The article pointed out that the company has already lost more than one-third of its value on the bourses year to date. Investor apprehension is also high as the article is apprehensive of the stock falling “to the low $20s” from its current price of around $26. The pessimism stems from the fact that the company posted lower year-over-year results on account of low commodity prices.
However, Kinder Morgan is on its way to meet the dividend target of $2.00 per share for 2015. This represents an increase of approximately 15% over the dividend of $1.74 declared in 2014. Also, the company is anticipating the increase of its 2016 dividend by 6–10% year over year.
Kinder Morgan is the largest energy infrastructure company in North America. It owns an interest in or operates approximately 84,000 miles of pipelines and 165 terminals. The company’s pipelines transport natural gas, gasoline, crude oil, CO2 and other products, and its terminals store petroleum products and chemicals, and handle bulk materials like coal and petroleum coke. Kinder Morgan is the largest midstream and third largest energy company in North America, with an enterprise value of approximately $115 billion.
Like all other oil and gas majors, Kinder Morgan remains vulnerable to volatile crude oil and natural gas prices, an imbalance between supply and demand for its products as well as rising interest rates. Such factors can hurt the company’s volumes and margins.
Moreover, Kinder Morgan’s distribution growth prospects are closely linked to the successful completion of organic growth projects, which in turn might be affected by operational hindrance, cost inflation and overruns and delays in completion.
Additionally, although Kinder Morgan possesses solid cash flow stability from quality pipeline and storage assets, we believe that higher gasoline and feedstock prices will marginally increase the risk profile of its refined product pipeline assets. Even with its diversified set of assets, Kinder Morgan has little exposure to the shale oil infrastructure.
But would it be too hasty to drop an incrementally dividend paying ace like Kinder Morgan from one’s portfolio right away? After all, Kinder Morgan carries a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the market over the next two to three months.
Some better-ranked stocks from the energy space are Seadrill Partners LLC SDLP and Sprague Resources LP SRLP. Both stocks sport a Zacks Rank #1 (Strong Buy).
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